Nyaga v Nyapela & another; Chhabhadiya Enterprises Limited (Third party) (Civil Suit 13 of 2012) [2025] KEHC 6150 (KLR) (Civ) (25 April 2025) (Ruling)
Neutral citation:
[2025] KEHC 6150 (KLR)
Republic of Kenya
Civil Suit 13 of 2012
JM Omido, J
April 25, 2025
Between
Joy Mercy Muthoni Nyaga
Plaintiff
and
Jackson Kanyale Nyapela
1st Defendant
Kampala Coach
2nd Defendant
and
Chhabhadiya Enterprises Limited
Third party
Ruling
1.Two applications, both filed by the Plaintiff, are the subject of this ruling:a.The Notice of Motion dated 24th May, 2024, expressed to be brought under Sections 1A, 1B, 3A of the Civil Procedure Act, Cap 21 Laws of Kenya, Order 22 Rule 35 and Order 51 Rule 1 of the Civil Procedure Rules and supported by the Plaintiff’s affidavit sworn on even date seeks the following orders:i.That the Honourable Court be pleased to order and direct that the corporate veil of the 2nd Defendant be lifted, and its directors be held directly liable for the payment of all outstanding decretal sum owed to the Plaintiff.ii.That Ahlam Basiet Abdul and Nijud Abdallah being the shareholders and directors of the 2nd Defendant do attend court and be examined as to whether they have any property or means of satisfying the decree herein and to produce the books of account and other documenting evidence showing the same before the Honourable Court.iii.That in default of the said directors complying with the above court order, they be ordered to personally pay all the decretal amount due from the date of delivery of judgement together with costs to the Plaintiff.iv.That in the alternative, the Honourable Court to order that the said directors and shareholders of the 2nd Defendant be imprisoned and committed to civil jail for a period not exceeding six (6) months.v.That costs be borne by the 2nd Defendant.b.The Notice of Motion dated 20th September, 2024 expressed to be brought under that seeks the following orders:i.That the Honourable Court be pleased to order and direct that the corporate veil of the 3rd Party be lifted, and its directors Ramji Karsan Visharam And Amratben Ramji Patel be held directly liable for the payment of all outstanding decretal sum owed to the Plaintiff.ii.That the said directors of the 3rd Party namely Ramji Karsan Visharam and Amratben Ramji Patel be ordered to personally pay all the decretal amount due from the date of the delivery of judgement together with costs to the Plaintiff.iii.That costs be borne by the 3rd Party.
2.The two applications were served upon the respective Respondents against whom the orders therein are sought to the satisfaction of the court. The respective Respondents to the applications did not file any responses thereto.
3.Upon examination of the record and the pleadings filed, including the affidavits in support of the two applications, I deduce the issue that I am tasked to determine to be whether this Court should lift the veils of incorporation over the 2nd Defendant and the 3rd Party and allow the Applicant to execute the decree issued herein against the directors/shareholders of the two companies.
4.It is clear from the depositions in the two supporting affidavits sworn by the Plaintiff, who is the decree holder herein, that the decree that was issued herein on 2nd March, 2023 jointly and severally against the Defendants and the 3rd Party remains unsatisfied.
5.It is also clear from her position that execution of the decree by attachment of the assets of the 2nd Defendant and the 3rd Party has failed because no attachable assets belonging to the two parties have been traced or identified by the Plaintiff.
6.The question that abounds is therefore whether this court should proceed to lift the corporate veils of the 1st Defendant and the 3rd Party so that the directors of the two companies are held personally liable to satisfy the decree.
7.The English case of Salomon & Salomon & Co. Ltd v Salomon [1897] A.C. 22 H.L. established the legal principle that a company is a separate and distinct person from its shareholders and directors.
8.Nevertheless, in order to prevent the abuse of that principle in Salomon, the law allows, in appropriate cases, and upon examination of the directors of the company, for an order to be issued for the corporate veil of a company be lifted so that the directors and/or shareholders of a company are held personally liable to pay the company’s debts.
9.Under what circumstances then, can a court issue such orders lifting the corporate veil of a company?
10.Halsbury’s Laws of England, 4th Edition, Vol. 7 (1), Paragraph 90 states as follows:
11.My brother Wananda J. in the case of Jepkemoi v Zaburi Enterprises Company Ltd & 2 others (Miscellaneous Civil Application 43 of 2023) [2024] KEHC 2343 (KLR) (8 March 2024) (Ruling) cited the case of Mugenyi & Company Advocates v the Attorney General [1999] 2 EA 199, in which the Court, while quoting Palmers Company Law Vol. 1 (22nd Ed) listed 10 instances in which the veil of corporate personality may be lifted, as follows:
12.The court in Jepkemoi (supra) then went on to observe as follows while considering the text in Palmers Company Law Vol. 1 (22nd Ed) and as discussed in the case of Mugenyi & Co. Advocates (supra):
13.The jurisprudence that emerges from the decision above is that before a party seeks for an order for the lifting of the corporate veil of a company, the party must first apply to the court to summon the directors of the company for purposes of being orally examined as to whether the company has any assets and/or means of satisfying the decree. The other purpose of such examination is to determine whether the directors are guilty of bad faith, or willful acts meant to avoid settlement of the decree or even outright fraud.
14.If the existence of such bad faith or willful acts of avoidance of settlement of the decree or fraud is established upon examination, only then can the court proceed to consider ordering for the lifting of the corporate veil of the company and holding the directors and/or shareholders thereof personally liable to settle the decree.
15.The foregoing being the position, the prayers in both applications seeking the lifting of the corporate veil of the 2nd Defendant and the 3rd Party are premature as no such examination of the directors of the two entities has been sought or conducted.
16.Thus then, I proceed to determine the two motions as follows:a.With respect to the application dated 24th May, 2024, I will grant only prayer 2 thereof and order that summons shall issue to Ahlam Basiet Abdul and Nijud Abdallah, the directors of the 2nd Defendant to attend court on a date that the court will issue for purposes of being orally examined as to whether the company has any assets and/or means of satisfying the decree that was issued herein and that the Plaintiff shall be at liberty, with reasonable notice, to call upon the said directors to produce any books of accounts or documents, for purposes of scrutiny.b.With respect to the application dated 20th September, 2024, the same is ordered struck out as it does not seek an order for the directors of the 3rd Party to be summoned for purposes of examination and is therefore premature.c.The matter to be mentioned before the Deputy Registrar, Milimani High Court Civil Division on 15th May, 2025 for purposes of fixing a date for the examination of the above-named directors of the 2nd Defendant and/or for further orders/directions.d.I make no order as to the costs of the two applications as no responses thereto were filed.
DELIVERED (VIRTUALLY), DATED & SIGNED THIS 25TH DAY OF APRIL, 2025.JOE M. OMIDOJUDGE